Business Travel Expenses: 10 General Guidelines

Traveling is a pretty common activity many employees and business owners experience in order to grow their business or fulfill their job responsibilities.  Different percentages have been calculated over the years, but roughly 15% of all long distance trips are over 50 miles with men being the main business travelers. In fact, in considering business tax deductions, the travel expense category is usually present or commonly reported on business tax returns in order to reduce business income. However, the laws and tax code for expensing travel related costs is not so straightforward, not to mention the IRS occasionally updates certain aspects of the tax code relating to travel expenses. Be sure to correctly deduct travel expenses, as you don’t want the IRS knocking on your door or sending you an audit notice.

Below are some tips or guidelines to be aware of if you are trying to calculate the correct tax deduction for travel expenses.

  • First make sure that any travel expense you want to deduct is “ordinary and necessary.” In general, travel expenses that are “necessary” are expenses that you need to incur in order to operate your business or to satisfy your job duties. Expenses that are “ordinary” are travel expenses that a business typically incurs or acceptable travel expenses like Airfare, Car Rentals, Internet fees, business meals, and so on.

  • Make sure travel expenses are not luxurious, or unreasonable. Reasonable expenses could be traveling in a limousine or traveling first class on a flight. However, in most cases for example, taking a private jet to see a business customer or renting out a huge house on the beach would be considered lavish and unreasonable.

  • Make sure your expenses are for business purposes. This includes, but is not limited to, expenses incurred in order to gain new customers, meet current customers, investigate competition, bettering your education (seminars) or skills related to your business, or to raise capital/seek investors.

  • Realize that business travel is any trip that entails a stay overnight away from your “tax home.” This is different from a local business trip. These two are different because certain expenses are deductible with a overnight business trip versus a local same-day business excursion. For example, if hypothetical John travels overnight to see a business customer for a meeting, he can deduct his meals. However, if John was traveling across town to a see a customer, he cannot deduct his breakfast.

  • In the point above, I mentioned your tax home. Your tax home is the “entire city or general area where your main place of business” is present, regardless of where you actually live. If you travel outside your “tax home” (for business purposes), which would be the major city or business area, then those travel expenses are deductible. If you work out of your home (you are an outside sales rep), your principal residence may still qualify as your “tax home,” so long as family resides there and you actually live there. 

  • If you work temporarily at different locations, another factor to consider in figuring out your tax home, is the duration of time you work at these other locations. For example, if you are consultant and you have a job related engagement with a company for 2 months, then the expenses associated with this brief engagement are tax deductible. In fact, as long as the engagement is less than a year, or it was reasonable to expect it to be less than a year, the costs incurred would be tax deductible. 

  • Generally, expenses that fall within the general living necessities of food (only 50% tax deduction), shelter and clothing are tax deductible. Transportation costs related to airlines fares, train fares, subway fares, bus fares, taxis and rental cars. If you are actually using your own vehicle when traveling, the mileage or costs associated with that are tax deductible.  Costs associated with housing such as hotels, motels, and so on. Costs associated with clothing such as laundry and dry cleaning are also tax deductible.

  • Other types of travel expenses that you can deduct include communication costs. This includes, but is not limited to, telephone expenses, cell phone costs, internet usage costs, facsimile costs, computer rental costs and the like.  

  • Don’t forget that tips related to services rendered for business purposes are also tax deductible as well as any shipping costs (for example you shipped your computer or luggage).

  • Most importantly, realize just like meals, entertainment is only a 50% deduction. Moreover, the entertainment must be enjoyed within the presence of a customer, potential customer, or potential investor/partner. For example, if you attend a Broadway show in New York City, make sure that you brought a current customer or someone that can help define the reasoning for the cost as being “business related.”